African Development Bank (AfDB) Initiatives is a grant program from the African Development Bank that funds economic development, poverty reduction, and institutional strengthening across low-income African Regional Member Countries.

Through the African Development Fund (ADF), the Bank provides concessional loans, grants, and guarantees, with allocations based on each country's Performance Based Allocation (PBA) determined by macroeconomic indicators and the Country Policy and Institutional Assessment (CPIA).

Dedicated funding windows include Regional Operations for cross-border infrastructure, the Private Sector Creditor Enhancement Facility for private sector development in fragile states, and the Transition States Facility for post-conflict recovery. Agribusiness owners, farmer cooperatives, and agri-entrepreneurs in Africa are among the eligible applicants for relevant programs.

Grant amounts vary by country classification and project scope.

Non-Regional Member Countries The Bank Group financial products Debt Sustainability and ADF Grant Eligibility The African Development Fund (ADF or the Fund) is the concessional financing window of the African Development Bank Group. The Fund provides low-income Regional Member Countries (RMCs) with grants, concessional loans including for project preparation and/or guarantees depending on their country classification.

The resource envelope available for a country is referred to as a Performance Based Allocation (PBA) and depends on specific macroeconomic and political performance indicators and the country’s development needs, as measured by the Country Policy and Institutional Assessment (CPIA).

The CPIA process measures the capacity of an eligible Regional Member Country to support sustainable growth, poverty reduction, and the effective use of development assistance. It also evaluates existing project portfolio performance. Additionally the CPIA methodology to determine the PBA focuses on the GNI per capita, size of the population and the level of infrastructure development as part of the needs assessment.

The PBA determination system ensures that a minimum allocation is attributed to eligible RMCs regardless the PBA measurement parameters on performance and need. Outside of the PBA allocation, the ADF window also offer dedicated funding for specific strategic priorities of the Fund.

The first is the Regional Operations (RO) envelope which leverages PBA resources in mobilizing financing for inter-RMC projects to promote connectivity across Africa. The second is the Private Sector Creditor Enhancement Facility (PSF) which enables additional financing of private sector operations in low-income countries through risk sharing frameworks with the ADB.

The third is the Transitions States Facility (TSF) which is a dedicate resource pool to support the most fragile of ADF eligible countries with post-conflict development, debt arrears clearance and other activities to specific to financing the most vulnerable economies. ADF countries have grown increasingly diverse in terms of their incomes, economic structures, natural resource bases, inequality and socio-economic development.

This growing diversity has prompted a change in the way the ADF supports its Regional Member Countries. During the Thirteenth General Replenishment of the ADF (ADF-13), ADF Deputies agreed that ADF resources will continue to be channeled to the poorest countries and endorsed changes to the ADF country groupings.

The Regional Member Countries that are only eligible to ADF resources will fall into two sub-groups: (i) Regular ADF-only countries and (ii) Advance ADF-only countries.

This differentiation is based on RMC Gross National Income (GNI) per capita, in that countries with a GNI per capita above the average of all ADF-only countries are included in the advance group, and all countries with a GNI per capita below the average are part of the Regular group.

The ADF lending window provides grant funding to facilitate the financing of technical assistance for studies and capacity building in support of projects and programs that spur poverty reduction and economic development. ADF has been financing operations in its eligible Regional Member Countries (RMCs) in the form of grants since its establishment in 1974.

Since ADF-10, the International Monetary Fund / World Bank Debt Sustainability Framework (DSF) and Debt Sustainability Analysis (DSA) for low-income countries has guided the determination of the proportion of ADF PBA resources that the Fund can extend to clients as grants.

Debt Sustainability and ADF Grant Eligibility : Formerly, under the ADF the eligibility of countries for grant resources was linked to expenditures that aimed to address specific operational priorities, such as education, health, water and sanitation, post-conflict reconstruction, and natural disaster assistance.

However, since 2005, the Joint World Bank-IMF’s Debt Sustainability Framework (DSF) methodology has been used to determine each country’s risk of debt distress, the applicable financing terms and eligibility to grants.

The Debt Sustainability Assessment (DSA) methodology is based on: (i) Regional Member Countries’ institutional strength and the quality of their policies regarding debt distress; and (ii) country-specific debt burden indicators, such as the Net Present Value (NPV) of the ratio of debt to gross domestic product, the NPV of the ratio of debt-to-exports, and the ratio of debt service-to-exports.

Based on this analysis, countries are classified as recipients of grants only, or recipients of a combination of loans and grants or recipients of loans only (see the ADF Loan section for more information on that instrument).

More specifically, the DSF determines each country’s risk of debt distress and its financing terms with regard to the Performance Based Allocations (PBA), the Regional Operations envelope and Pillar I of the Transition Support Facility, particularly its eligibility for grants.

Non-Concessional Debt Accumulation Policy : The provision of grants and debt relief to eligible ADF countries is intended to help bring their debt to sustainable levels and create fiscal space for priority development expenditures.

The accumulation of new debts on non-concessional terms can undermine these objectives and introduce the risk of free-riding – a situation in which grants, and debt relief provided by one or more parties cross-subsidize new borrowing from third party lenders on non-concessional terms. This risk is particularly high in resource-rich ADF countries in which non-concessional borrowing may be secured against future export receipts.

In 2008, the Board of Directors approved the Bank Group Policy on Non-Concessional Debt Accumulation with the view to mitigate the impact of rapid accumulation of non-concessional debt on grant-eligible ADF countries or those with post-HIPC/MDRI debt relief situations so as guide the future use of ADF concessional resources.

The policy, which is closely aligned with the World Bank’s IDA policy on non-concessional borrowing and the IMF’s external debt limit policy, is based on a two-pronged approach: enhancing creditor coordination around the joint IMF-World Bank Debt Sustainability Framework and discouraging unchecked non-concessional debt accumulation by applying compliance measures, including volume discounts and the hardening of ADF loan terms.

Specifically, the following amendments to the 2008 Bank Group Policy on Non-Concessional Debt Accumulation Policy were adopted: More flexibility in determining the Bank Group concessionality limits, by replacing the single benchmark grant element of 35% with a more nuanced concessionality framework, to better account for the diversity of country circumstances as reflected in their debt vulnerability and their debt management capacity.

For ADF-only countries with low risk of debt distress (green light countries), flexibility will be applied to accommodate their non-concessional borrowing needs consistent with the assessment of their debt management capacity, while for ADF-only countries assessed to have a moderate and high risk of debt distress (yellow light and red light countries), the previous minimum concessionality limit of 35% will continue to apply with a limited flexibility.

This amendment provided greater flexibility to nearly half of the ADF-only countries at the time of implementation to access some level of non-concessional external debt; thereby enabling them to mobilize much-needed additional development resources.

With the view to ensuring ADF resources are channeled to those countries that need concessional resources the most, and to reduce the risk of moral hazard with respect to ADF borrowers, the 2008 amendments included a more streamlined mix of compliance measures that will be applied on a case-by-case basis to client countries that breach the policy, taking into account the scale of the breach.

The compliance measures are intended to ensure consistency with application of the revised concessionality framework. The Bank Group’s approach to mitigating the accumulation of unsustainable non-concessional debt by ADF countries continues to be anchored on the guiding principles of strong partnership and coordination, flexibility and country-differentiated approach, and effective and implementable measures.

Within this broad framework, the four pillars of the 2008 Bank Group Policy on Non-Concessional Debt Accumulation continue to apply: Strengthening partnerships and coordination with sister financial institutional and bilateral agencies, with the view to adopt a common strategy, including conducting Debt Sustainability Analysis, outreach and advocacy exercises; Maintaining a standing inter-departmental committee to monitor the status of non-concessional borrowing; Ensuring the inclusion of and close monitoring of adherence to a clause requiring reporting on new non-concessional borrowing in all ADF grant/loan agreements for ADF-only borrowers; and Enhancing economic and debt management capacity building support at country and regional levels, in collaboration with other partners.

The Bank Group Policy on Non-Concessional Borrowing should not be viewed in isolation, but within the broader context of the Bank Group’s efforts to support and facilitate Regional Member Countries’ efforts to achieve their development goals. ADF is acutely cognizant of the need to strike the right balance between the policy objectives of debt sustainability and financing for development.

The current policy reflects the Bank Group’s commitment to adopting a country-differentiated concessionality framework that supports client countries’ debt sustainability.

In view of the fast-changing global economic reality and the implications for development financing flows to African low-income countries, the Bank Group’s approach and policy on non-concessional borrowing will be reviewed regularly to take into account lessons and policy frameworks that are more enabling to advance the development goals of its Regional Member Countries.

Independent Review Mechanism (IRM) Integrity and Anti-Corruption Initiatives & Partnerships Project Appraisal Reports Project/Programme Completion Reports Loan and Grant Conditions Projects Performance Evaluation Report Completion Report Reviews Integrity & Anti-Corruption Reports Environmental & Social Assessments